For many investors, “daytrading” is a dirty word. On the other hand, the opposite extreme of buying and holding lost it allure as stocks have made little net progress since 1999.

But there is a happy medium, and this year, with its economic and geopolitical challenges, is a good time to learn how to go with the market’s flow. That means finding the market’s natural rhythms and trading — yes, buying and selling — as the major trends change.

I cannot emphasize enough that this is not daytrading or even short-term trading. It does not require being tied down to your quote machine or checking your smartphone market app every 10 minutes. Rather, it is a once-per-day or even once-per-week analysis of the market to follow the trend in place as an active investor, emphasis on the word “investor.”

Let’s take a look at the Standard & Poor’s 500
SPX, -0.88%
over the past three years (see Chart 1).

Since the summer of 2010, there have been several rally and decline phases of at least 10% each. We’ll leave the current action from the September 2012 high aside for now.

Looking at this chart in hindsight, it would have been great to know at the time that the May 2011 high was a major high. And it would have been great to know a few months later in October that a new rally phase was about to begin.

While it is easy to pick out chart patterns months after they happen, the fact is that there were ample clues available to let us know that the odds of a major turn were high. For example, the trendline from August 2010 was clearly broken in late May 2011. And while there was a sizeable retracement to the upside, the trend had indeed changed for the worse.

A similar event happened at the early 2012 high with a trend break and retracement to the upside.

At the 2011 low, the trend was not very well defined, but the market scored bullish reversal bars in both weekly and daily formats. Technically, these reversals along with heavy volume told us something big was changing. Fundamentally, news that the Fed was going to implement a stimulus plan called “Operation Twist” provided a bullish backdrop. The turnaround was quick and it was obvious on the charts. When the declining trendline, weak as it was, broke to the upside, we knew the trend had changed for the better.

None of this was textbook action. Theoretically, trendline breaks are supposed to lead quickly into new trends. In the real world of the past few years, many trend breaks were followed by big, almost whipsaw-like corrections. But recognizing that they were indeed trend breaks kept investors on the right side of the market.

As we can see, each rally-and-decline phase became progressively smaller. We can blame the diminishing effects of Fed actions or simply that the multi-month trends gave way to multi-week trends.

Regardless, the market told us last October through a trend break that the high was a month earlier. The rally that began in November is still a correction in a new declining trend.

With the new year upon us and plenty of political wrangling over the so-called fiscal cliff still to come, it is a good bet that trend is still to the downside. Therefore, there is no shame in managing your portfolio to preserve capital rather that to chase gains.

Of course, if the market decides Washington has its act together, then we look for a breakout to the upside above last month’s high. At that point, we will know that the September-November decline was all she wrote, the new trend is to the upside and capital accumulation, i.e. - aggressively owning stocks, is the way to go.

In either case, there is no need to fear the market. It will give us clues about what it is going to do. More importantly, it will tell us very quickly when it changes its mind so we can cut losses and change strategies.

Respect the market but don’t fear it. It is a stern yet benevolent master.

Michael Kahn writes the Getting Technical column for Barron’s Online , which analyzes sectors and markets. Sign up for a free technical analysis chart of the day at Quick Takes Pro.

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